The Duty to Report Administrative Action to Other States by Douglas M. Palais
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As you know, the Virginia Bureau of Insurance (VBOI), an arm of the Virginia State Corporation Commission (SCC), has broad powers with respect to Virginia insurance agents or those purporting to be agents. Included in those powers is the statutory authority, without notice, to visit your agencies, review client and accounting files, demand to review any other agency documentation and interview agency principals and employees.
If the VBOI investigators believe that the agency may have violated any of the provisions of the Code of Virginia or SCC regulations, the VBOI provides written notice of the potential violation or violations. In that event, every agent has the right to a full trial before the SCC. But nearly every agent settles with the VBOI and these settlements practically always include a sanction in the form of a fine and/or a period of suspension and/or probation. The settlement is technically with the SCC.
Many agents believe that, once a settlement is made here in Virginia, their work is done, except for the requisite compliance with the sanction. If, however, the sanctioned agent has any non-resident license, his or her work may be just beginning! Any sanction, no matter how mild, is an “administrative action” for which you have reporting obligations.
Accordingly, if you are in the process of applying for non-resident licenses, you must promptly disclose the Virginia administrative action to each state to which you are applying. By way of example, the following appears on the West Virginia Insurance Department’s website, under the heading “How to Apply for a NonResident Producer License:”
“IMPORTANT: Make sure you answer all questions completely and disclose all information requested. In addition, licensed insurance producers are required to report to the Commissioner within 30 days any administrative actions or any criminal convictions in any jurisdiction…” (emphasis added in the second sentence).
Please note that virtually the same requirement exists in many states which require a report even after your application has been received and processed.
In conclusion, in the unhappy event that you suffer an administrative action in Virginia, you must ascertain where, if anywhere, you have either existing or pending non-resident licenses and promptly notify each jurisdiction’s insurance regulators. Ironically, failure to do so may be construed by the jurisdictions as an independent violation, resulting in an administrative action in each of those other states.
As a footnote from the E&O department, there is generally a question on all E&O applications asking if there has been any investigations and/or disciplinary action by a regulatory authority. As a helpful tip to the agency applying for E&O insurance, if your answer is yes, be sure to provide your underwriter with full details of the situation including dates. If the disciplinary action has been resolved in the insured’s favor, this will certainly be in their best interest to advise such. Also, if the disciplinary action involved a former employee who is no longer affiliated with the agency, or the action involved was an issue that was administrative in nature, this is important to note.
Doug Palais has been the “lawyer of choice” for IIAV’s Professional Liability clients for over 25 years. Doug recently joined the Vandeventer Black LLP law firm, which is a full service, international business law firm operating for over 100 years. He is a seasoned trial lawyer and counselor with 35 years of experience and concentrates his practice in Professional Liability; Errors & Omissions Defense of Insurance and Securities Professionals; Directors & Officers Liability Defense; Securities Litigation and Arbitration; Insurance Coverage and Defense; Legal Malpractice Defense and Financial Institutions and Securities. Doug regularly writes and speaks on issues relating to insurance agents and brokers. He is also a frequent speaker for IIAV on professional liability and regulatory matters. Doug also makes himself available to member agents in connection with legal problems.
Douglas M. Palais
VANDEVENTER BLACK, LLP
Riverfront Plaza – West Tower
901 E. Byrd Street
Suite 1600
Richmond VA 23219
804-237-8811
dpalais@vanblk.com
